UK Budget Moved to October to Avoid Brexit Clash

The decision to hold the UK's main Budget next month has been made with crunch Brexit negotiations in mind

James Gard 27 September, 2018 | 10:04AM
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The Budget red box, Philip Hammond

The UK Treasury said yesterday that the UK's main Budget will be on 29 October, earlier than expected.

The announcement yesterday has wrongfooted many commentators who were expecting a November speech from the Chancellor.

The Treasury, announcing the news on Twitter on Wednesday afternoon, said; "This will set out the government’s plan to build a stronger, more prosperous economy, building on the recent Spring Statement and last year’s Budget."

The Budget announcement, once the economic calendar's highlight, is being overshadowed by negotiations over Brexit, which enter their critical stage in early November. The recent Salzburg summit, and the Prime Minister's reaction to her treatment at the hands of EU officials, has increased the likelihood of a no-deal Brexit.

The Budget itself has recently switched seasons, from spring to autumn, to allow officials, businesses and individuals to prepare for changes ahead of the new tax year.

Giveaways or Keeping the Powder Dry?

There are a number of possible approaches that the Government can take this Budget. The Chancellor could hold fire on new announcements in case the economy needs some fiscal stimulus if hard or no-deal Brexit creates the chaos many, including the IMF, are predicting.

On the other hand, with public finances improving Philip Hammond could announce sweeteners to get beleaguered voters back onside amid the political chaos. A number of party political factors could sway this argument: talk of leadership challenges to Theresa May within the Conservative Party, and the positive reaction in some quarters to Corbynomics at the Labour Party conference. August public finance figures were worse than expected but on a year on year basis, the Government's borrowing requirements are likely to be smaller this financial year than the one before.

Those expecting "Budget giveaways" could read some signals from the Chancellor's U-turn over scrapping Class 2 National Insurance contributions for self-employed workers. The move angered the small business lobby, which argued that it affects the lowest-paid of the self-employed.

There are a number of Middle England issues that could be addressed at this Budget. Changes to higher rate tax relief for pensions have been seen as "low-hanging fruit" for the Chancellor but he has dodged the issue on previous occasions. Higher-rate tax payers getting a 40% boost from the Government could be traded off against the NHS receiving much-needed funds. Setting a flate rate of pension relief woulc, in theory, save the government billions of pounds. The so-called "triple-lock" to state pension benefits is also vulnerable, but any changes to this would be politically harder to pull off.

One area that the Government could look at this time, according to Nathan Long of Hargreaves Lansdown, is the lifetime and annual pension allowance. While the £1 million allowance may seem like an unattainable fantasy for those starting off their retirement savings in auto-enrolment, plenty of public sector workers could soon see themselves moving above this threshold to pay 55% tax. Long argues that adjusting the allowance could be a politically advantageous move for the Government and that ignoring these key voters, which include teachers, senior police officers and NHS workers, would be a mistake.

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James Gard  is content editor for Morningstar.co.uk